Yahoo searches for answers as it runs out of options, makes deal with Google

Yahoo announced grimly on Friday that talks
with Microsoft were over. According to Yahoo at a secret Sunday
meeting Microsoft "unequivocally" rejected the idea of buying the
whole company and tried instead to push for Yahoo to sell
it just its search portal. Interestingly, Microsoft appears to
believe the search portal is worth more than the company as a whole, at least
to its interests. Yahoo, however, clung to the belief that its search
portal, second on the internet to rival Google, was too valuable to sell
piecemeal.

The news of talks ending sent shares sinking like a stone in the sea, down over
two and a half dollars to finish at $23.52. To put this in context,
Microsoft publicly offered Yahoo $33 a share. Yahoo demanded $37 a share,
saying Microsoft proposal "significantly undervalued" it.

It has since come out that the faceoff occurred at a Seattle
airport on May 3, between Yahoo CEO Jerry Yang and Microsoft CEO Steve
Ballmer. Yang allegedly demanded more money and Ballmer balked
at the demand. This exchange reiterated Yahoo's penchant for a rather
vainglorious vision of self-worth, which it has held throughout much of the
talks while showing little ability to justify it.

Standard and Poor's equity analyst Scott Kessler puts it aptly, saying,
"If you are a Yahoo! shareholder, you just have to be scratching your head
right now."

Perhaps more shocking, according to a recent lawsuit filed by shareholders
Ballmer later would go on to make an offer of $40 a share -- nearly a hundred
percent premium at the current share price. According to the lawsuit,
Yang and Yahoo Board Chairman Roy Bostock intentionally sabotaged the deal, and
were not interested in selling the company at any price. These claims
have yet to be proved or disproved in a court of law.

The end of talks and Yahoo's failing stock is especially bad news for Yang and
Bostock, as it puts investor Carl Icahn in prime position to sway already
malcontent shareholders to his side when he attempts
a takeover in the company's annual shareholder meeting, which Yahoo's
management has pushed back to August. If successful, Icahn is going to do
a little late summer cleaning, ousting
not only all the board, but also Yang, who he feels has been especially
damaging to the company and its ability to deal.

A small hope still lies for Yahoo's top leadership in that Microsoft's complete
rejection may bring into question whether Icahn's attempt to sell would have
any more success. Many analysts think that a great deal of whether the
takeover bid succeeds depends on what kind of plan Icahn can bring to the
table. An optimal scenario for him would be if he came having already
advanced in preliminary informal negotiations with Microsoft, while a not as
promising scenario would be if he merely said talks would commence after the
switch.

Icahn remained silent on the latest developments for the time being.

In yet another sign of slippage, Yahoo is trying to regain composure after the
failure by announcing
a deal with Google. After a test run with Google showed that using
Google advertising next to Yahoo search results would significantly up revenue,
Yahoo is eager to make a deal with Google. The deal, if it passes
antitrust scrutiny is estimated to bring in about $800M USD extra revenue for
Yahoo in the next 12 months.

Google's
top executives were quick to praise the deal. Cofounder Sergey Brin
said, "I am happy to be helping them to stay independent."

And his fellow cofounder Larry Page added, "Having more money is a good
thing."

However, beneath the rhetoric, the fact remains that coming to Google is a
major concession, and will likely forever put Yahoo at second place, at best,
in a critical element of the search engine business -- advertising. While
a Microsoft-Yahoo conglomeration, might have dreamed of taking on Google, the
Yahoo of today, selling parts of its business to Google, has little chance of
holding such hopes. The latest developments only bring more uncertainty
and drama to the unfolding story of the struggling company that was once the
internet's top search engine.

"Mac OS X is like living in a farmhouse in the country with no locks, and Windows is living in a house with bars on the windows in the bad part of town." -- Charlie Miller